Vda. De Mistica vs.

Naguiat
Art. 1182. Potestative Condition

Facts Predecessor-in-interest of Petitioner and herein Defendants entered into a contract to sell in
which the latter prayed the initial payment and undertake to pay the remaining by installment
within 10 years subject to 12% interest per annum
Petitioner filed a complaint for rescission alleging failure and refusal of Defendants to pay the
balance constitutes a violation of the contract which entitles her to rescind the same
Petitioner argues that period for performance of obligation cannot be extended to 10 years
because to do so would convert the obligation to purely potestative
Held Under Art. 1191 of Civil Code, the right to rescind an obligation is predicated on violation
between parties brought about by breach of faith by one of them. Rescission, however, is allowed
only when the breach is substantial and fundamental to the fulfillment of the obligation
In this case, no substantial breach in the Kasulatan, it was stipulated that payment could be
made even after 10 years from execution of contract, provided they will pay the 12% interest
Civil Code prohibits purely potestative, suspensive, conditional obligation that depend on the
whims of the debtor. Nowhere in the deed that payment of purchase price is dependent whether
respondents want to pay it or not, the fact that they already made partial payment shows that
parties intended to be bound by the Kasulatan
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Cannu v Galang

Galang obtained a loan from Fortune Savings & Loan to purchase a house in Las Pinas Sold to
Cannu the house plus the assumption of mortgage obligations After payment by Cannu,
Php45,000 was left of the balance of the purchase price Galang demanded either payment of the
balance or to vacate the property Because petitioners refused to pay the loan, respondent
assumed the mortgage balance. Respondents alleged that because they paid the balance, it is
an initial step in the rescission of the Deed of Sale CA ruled that the breach of the contract is
substantial and rescission is justified
The SC affirmed that 18%, representing portion of the unpaid balance, is substantial. Last
payment was 18 months before respondent paid mortgage balance. There was sufficient time for
petitioner to pay the balance. There was clear intention of the petitioners to renege their
obligations Failure to fulfill their obligation gave respondents the right to rescission The contract
does not contain provision authorizing extra-judicial rescission. Respondent should have asked
for judicial intervention SC affirmed the CA ruling and ordered the respondents to return the
partial payment made by the petitioners.
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Pryce Corp vs PAGCOR

FACTS Pryce Corp made representations with PAGCOR on the possibility of setting up a casino in
Pryce Plaza Hotel in Cagayan de Oro City (CDO). Parties executed a contract of lease on
November 11, 1992. The contract had a term of 3 years beginning December 1, 1992 and ending
on November 30, 1995. The Sangguniang Panlungsod of CDO passed resolutions and ordinances
prohibiting the establishment of a gambling casino in the city. The court subsequently ruled that
the ordinances were unconstitutional. Despite the absence of legal obstacles, PAGCOR's
operations were interrupted by demonstrations and public rallies. PAGCOR decided to stop its
operations upon advice from the Office of the President. PAGCOR asked for a pre-termination of
the contract and demanded a refund of the reimbursable rent deposits from Pryce Corp. Pryce
Corp is instead demanding damages pursuant to Art 20 of their contract.
ISSUE: Whether or not Pryce Corp is entitled to the claim of future rentals for the unexpired
period of the contract of lease.
RULING: The actions of the petitioner show that it never intended to rescind the lease contract,
thus there is not need to mutual restitution. There was termination and not rescission (resolution)
of the contract.
Normally, Pryce Corp is not entitled to the collection of future rentals since the termination of the
contract releases PAGCOR from its obligations. But Pryce Corp can recover or claim rentals

corresponding to the remaining term of the lease pursuant to the contract's penal clause. Such
stipulation is valid and since the parties have voluntarily bound themselves to such compliance,
the court has no choice but to enforce the contract. However, the court reduced the penalty to
Php687,289.50 since the original claim of Php7,037,835.40 is highly iniquitous.
RELEVANT JURISPRUDENCE
Resolution vs. Termination
Effects
Resolution
Termination
Contract
To declare contract as void as though it To cancel, put an end in time or
never existed
existence; a close or conclusion
Restitution
Parties are restored to their original
Parties are not restored to their original
situations
situations
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Deiparine vs CA

FACTS: Spouses Carungay entered into an agreement with Deiparine for the construction of a 3storey dormitory. The Carungays agreed to pay Php970K, and Deiparine bound himself to erect
the building in strict accordance to the plans and specifications. In the General Conditions and
Specifications document, the minimum acceptable compressive strength of the building was set
at 3,000 psi (pounds per square inch). However, the Carungays found out that Deiparine was
deviating from the plans and specifications, thus impairing the strength and safety of the
building. The spouses even issued a memorandum complaining that the construction works
were faulty and done haphazardly mainly due to lax supervision coupled with inexperienced and
unqualified staff. The memorandum was ignored.
After several conferences, the parties agreed to conduct cylinder tests to ascertain compliance
with safety standards. Carungay suggested core testing (a more reliable test of safety and
strength), and although Deiparine was relunctant at first, he agreed to it and even promised that
should the structure fail the test, he would shoulder the test expenses. The core test was
conducted, and the building was found to be structurally defective. RTC declared the contract
rescinded, Deiparine to have forfeited his expenses in the construction, and ordered Deiparine to
reimburse the spouses for the core testing and restore the premises to their former condition
before the construction began.
CA affirmed RTC.
ISSUES:WON RTC had jurisdiction over the case 2. WON rescission is the proper remedy
HELD: Yes. Firstly, there is no Philippine Construction Development Board in existence. There is
however, a Philippine Domestic Construction Board (PDCB), but this body has jurisdiction to
settle claims and disputes in the implementation of PUBLIC construction contracts (only), and
thus does not have jurisdiction over private construction contracts. (Deiparines counsel is even
held in contempt of court for changing the wording of the relevant provision in the law, making it
appear that the PDCB had jurisdiction over the instant case.)
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Laperal vs. Solid Homes, Inc.

Facts: Filipinas Golf Sales and Development Corporation, predecessor-in-interest of Filipinas Golf
and CountryClub, Inc., represented by its then President, Oliverio Laperal, entered into a
Development and Management Agreement with respondent Solid Homes, Inc., a registered
subdivision developer, involving several parcelsof land owned by Laperal and FGSDC. Under the
terms and conditions of the aforementioned Agreement and the Supplement, respondent
undertook to convert at its own expense the land subject of the agreement into a first-class
residential subdivision, in consideration of which respondent will get 45% of the lot titles of the
saleable area in the entire project. It appears, however, that even as the Revised Agreements
already provided for the non-surrender of the owner s duplicate copies of the titles,
respondent persisted in its request for the delivery thereof .Then, petitioners served on
respondent notices of rescission of the Revised Agreements with a demand to vacate the subject
properties and yield possession thereof to them.

Issue: Whether the termination of the Revised Agreement and Addendum, because of the
contractual breach committed by respondent Solid Homes, carried with it the effect provided
under Article 1385 of the New Civil Code.
Ruling: Mutual restitution is required in cases involving rescission under Article 1191. Since
Article 1385 of the CivilCode expressly and clearly states that rescission creates the
obligation to return the things which were the object of the contract, together with their fruits,
and the price with its interest, the Court finds no justification to sustain petitioners
position that said Article 1385 does not apply to rescission under Article 1191.As a consequence
of the resolution by petitioners, rights to the lot should be restored to private respondent or the
same should be replaced by another acceptable lot.
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UNIVERSITY OF THE PHILIPPINES VS. DE LOSANGELES

FACTS: UP and ALUMCO entered into a logging agreement whereby the latter was granted
exclusive authority to cut, collect and remove timber from the Land Grant for a period starting
from the date of agreement to December 31, 1965, extendible for a period of 5 years by mutual
agreement. ALUMCO incurred an unpaid account of P219,362.94. Despite repeated demands,
ALUMCO still failed to pay, so UP sent a notice to rescind the logging agreement. On the other
hand, ALUMCO executed an instrument entitled Acknowledgment of Debt and Proposed Manner
of Payments. It was approved by the president of UP, which stipulated the following: 3. In the
event that the payments called for are not sufficient to liquidate the foregoing indebtedness, the
balance outstanding after the said payments have been applied shall be paid by the debtor in full
no later than June 30, 1965. 5. In the event that the debtor fails to comply with any of its
promises, the Debtor agrees without reservation that Creditor shall have the right to consider the
Logging Agreement rescinded, without the necessity of any judicial suit ALUMCO continued its
logging operations, but again incurred an unpaid account. On July 19,1965, UP informed ALUMCO
that it had, as of that date, considered rescinded and of no further legal effect the logging
agreement, and that UP had already taken steps to have another concessionaire take over the
logging operation. ALUMCO filed a petition to enjoin UP from conducting the bidding. The lower
court ruled in favor of ALUMCO, hence, this appeal.
ISSUE: Can petitioner UP treat its contract with ALUMCO rescinded, and may disregard the same
before any judicial pronouncement to that effect?
RULING: Yes. In the first place, UP and ALUMCO had expressly stipulated that upon default by
the debtor, UP has the right and the power to consider the Logging Agreement of December 2,
1960 as rescinded without the necessity of any judicial suit. As to such special stipulation and in
connection with Article 1191 of the Civil Code, the Supreme Court, stated in Froilan vs. Pan
Oriental Shipping Co: There is nothing in the law that prohibits the parties from entering into
agreement that violation of the terms of the contract would cause cancellation thereof, even
without court intervention. In other words, it is not always necessary for the injured party to
resort to court for rescission of the contract.
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Iringan vs CA

FACTS On March 22, 1985 private respondent Antonio Palao sold to petitioner Alfonso Iringan an
undivided portion of Lot No. 992 of the Tuguegarao Cadastre, located in Poblacion of Tuguegarao.
Parties executed a Deed of Sale on same date with the purchase price of P295K, payable as
follows:
P10K upon execution of this instrument, and vendor acknowledges having received the amount;
P140K on or before April 30, 1985;P145K on or before December 31, 1985.
When second payment was due, Iringan paid only P40K. On July 18, 1985, Palao sent a letter to
Iringan stating that he would not accept any further payment considering that Iringan failed to
comply with his obligation to pay full amount of second installment.
Iringan replied that they were not opposing the revocation of the Deed of Sale, but asked for the
reimbursement of the ff:P50K cash received;P3,200geodetic engineers fee;P500attorneys
fee;Interest on P53,700.
Petitioners Claim: That no rescission was effected simply by virtue of the letter sent by
respondent stating that he considered the contract of sale rescinded. That a judicial or notarial
act is necessary before one party can unilaterally effect a rescission.

Respondents Comment: The right to rescind is vested by law on the obligee and since petitioner
did not oppose the intent to rescind the contract, Iringan in effect agreed to it and had the legal
effect of a mutually agreed rescission.
ISSUES :WON the contract of sale was validly rescinded;
HELD : The contract of sale between the parties as far as the prescriptive period applies, can still
be, validly rescinded.
Ratio: Art 1592 requires the rescinding party to serve judicial or notarial notice of his intent to
resolve the contract. A judicial and notarial act is necessary before a valid rescission can take
place, whether or not automatic rescission has been stipulated. The phrase even though
emphasizes that when no stipulation is found on automatic rescission, the judicial or notarial
requirement still applies.
The right to resolve reciprocal obligations (Art 1191) is deemed implied in case one of the
obligors shall fail to comply with what is incumbent upon him. But the right must be invoked
judicially. Even if the right to rescind is made available to the injured party, the obligation is not
ipso facto erased by the failure of the other party to comply with what is incumbent upon him.
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SPOUSES WILLIAM AND JEANETTE YAO V. CARLOMAGNO B. MATELA

FACTS: Spouses Yao contracted the services of Matela, a licensed architect, to manage and
supervise the construction of a two-unit townhouse at a total cost of P5M. The construction
started in the first week of April 1997 and was completed in April 1998, with additional works
costing P300K. Matela alleged that the spouses Yao paid him the amount of P4.6M, thereby
leaving a balance of P741k. When his demand for payment went unheeded, Matela filed a
complaint for sum of money with the RTC. In their answer, the spouses Yao denied that the
project was completed in April 1998. Instead, they alleged that Matela abandoned the project
without notice. They claimed that they paid Matela the sum of P4.7M which should be considered
as sufficient payment considering that Matela used sub-standard materials causing damage to
the project which needed a substantial amount of money to repair. RTC rendered judgment in
favor of Matela, based on documents issued by the Building Official of Makati City. The Court of
Appeals affirmed the decision of the lower court but modified the amount of actual damages to
P391k. Thereafter, another case was filed by Matela, regarding the collection of the P300k
additional construction cost.
ISSUE: WON MATELA MAY COLLECT ACTUAL DAMAGES AND THE ADDITIONAL CONSTRUCTION
COST?
HELD: NO, BOTH PARTIES ARE GUILTY OF BREACH. Reciprocal obligations are those which are
created or established at the same time, out of the same cause, and which result in mutual
relationships of creditor and debtor between the parties. These obligations are conditional in the
sense that the fulfillment of an obligation by one party depends upon the fulfillment of the
obligation by the other. In reciprocal obligations, the general rule is that fulfillment by both
parties should be simultaneous or at the same time.The rule then is that in reciprocal obligations,
one party incurs in delay from the moment the other party fulfills his obligation, while he himself
does not comply or is not ready to comply in a proper manner with what is incumbent upon him.
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Ong vs Bagnalbal

FACTS: 2 parcels of land under 1 TCT are owned by alfredo and when he died, his wife julita go
ong was appointed administratrix of his estate. Julita thereafter mortgaged 1 lot to Allied Banking
Corp. to secure a loan obtained by JK Exports, annotated as a lien on the original TCT, with the
following notation: mortgagees consent necessary in case of subsequent alienation or
encumbrance of the property
On the loan there was due a sum and Allied tried to collect it from Julita. Hence, the complaint
alleging nullity of the contract for lack of judicial approval which the bank had allegedly promised
to secure from the court. In response thereto, the bank averred that it was Julita who promised to
secure the courts approval.
Trial court ruled for Julita, stating that the contract is valid. CA affirmed with modification the
lower courts decision
ISSUE: WHETHER OR NOT THE MORTGAGE CONSTITUTED OVER THE PARCEL OF LAND UNDER
PETITIONERS ADMINISTRATION IS NULL AND VOID FOR WANT OF JUDICIAL APPROVAL.

HELD: contract is valid

Petitioner, asserting that the mortgage is void for want of judicial approval, quoted Section 7 of
Rule 89 of the Rules of Court . The CA aptly ruled that Section 7 of Rule 89 of the Rules of Court is
not applicable, since the mortgage was constituted in her personal capacity and not in her
capacity as administratrix of the estate of her husband. Sec. 7, Art. 89 of the Civil Code applies in
a case where judicial approval has to be sought in connection with, for instance, the sale or
mortgage of property under administration for the payment, say of a conjugal debt, and even
here, the conjugal and hereditary shares of the wife are excluded from the requisite judicial
approval for the reason already adverted to hereinabove, provided of course no prejudice is
caused others, including the government.
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ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS, vs. DAN T. LIM,
FACTS: Dan T. Lim (Lim) works in the business of supplying scrap papers, cartons, and other raw
materials, under the name and Quality Paper and Plastic Products, Enterprises, to factories
engaged in the paper mill business. He delivered scrap papers to Arco Pulp and Paper Company,
Inc. (Arco Pulp and Paper) through its CEO and President, Candida A. Santos. The parties
allegedly agreed that Arco Pulp and Paper would either pay Lim the value of the raw materials or
deliver to him their finish products of equivalent value.
Lim alleged that when he delivered the raw materials, Arco Pulp and Paper issued a post-dated
check, with the assurance that the check would not bounce. When he deposited the check, it was
dishonored for being drawn against a closed account.
On the same day, Arco Pulp and Paper, and a certain Eric Sy executed a memorandum of
agreement where Arco Pulp and Paper bound themselves to deliver their finished products to
Megapack Container Corp., owned by Eric Sy. According to the memorandum, the raw materials
would be supplied by Lim, through his company, Quality Paper and Plastic Products.
ISSUE: Whether the obligation between the parties was an alternative obligation.
HELD: Yes. The obligation between the parties was an alternative obligation. The rule on
alternative obligation is governed by Article 1199 of the Civil Code.
In an alternative obligation, there is more than one object, and the fulfillment of one is sufficient,
determined by the choice of debtor who generally has the right of election. The right of election
is extinguished when the party who may exercise that option categorically and unequivocally
makes his or her choice known. The choice of the debtor must also be communicated to the
creditor who must receive notice of it since the object of this notice is to give the creditor
opportunity to express his consent, or to impugn the election made by the debtor, and only after
said notice shall the election take legal effect when consented by the creditor, or if impugned by
the latter, when declared proper by a competent court.
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Baldomero Inciong Jr. vs CA

FACTS:In February 1983, Rene Naybe took out a loan from Philippine Bank of Communications
(PBC) in the amount of P50k. For that he executed a promissory note in the same amount. Naybe
was able to convince Baldomero Inciong, Jr. and Gregorio Pantanosas to co-sign with him as comakers. The promissory note went due and it was left unpaid. PBC demanded payment from the
three but still no payment was made. PBC then sue the three but PBC later released Pantanosas
from its obligations. Naybe left for Saudi Arabia hence cant be issued summons and the
complaint against him was subsequently dropped. Inciong was left to face the suit. He argued
that that since the complaint against Naybe was dropped, and that Pantanosas was released
from his obligations, he too should have been released.
ISSUE: Whether or not Inciong should be held liable.
HELD: Yes. Inciong is considering himself as a guarantor in the promissory note. And he was
basing his argument based on Article 2080 of the Civil Code which provides that guarantors are
released from their obligations if the creditors shall release their debtors. It is to be noted
however that Inciong did not sign the promissory note as a guarantor. He signed it as a solidary
co-maker.
A guarantor who binds himself in solidum with the principal debtor does not become a solidary
co-debtor to all intents and purposes. There is a difference between a solidary co-debtor and

a fiador in solidum (surety).

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LAFARGE CEMENT PHILIPPINES, INC vs CONTINENTAL CEMENT CORPORATION (CCC)
FACTS:On August 11, 1998, a letter of intent was executed by both parties, Lafarge and CCC.
Lafarge agreed to purchase the cement business of CCC. On October 21, 1998, they entered into
a Sale and Purchase Agreement (SPA). The petiitioners, at the time of such transactions were
aware of the pending case of CCC with the Supreme Court entitled Asset Privatization Trust (APT)
v. Court of Appeals and Continental Cement Corporation. In anticipation of the liability that the
High Tribunal might adjudge against CCC, the parties, under Clause 2 (c) of the SPA, allegedly
agreed to retain from the purchase price a portion of the contract price in the amount of
P117,020,846.84 -- the equivalent of US$2,799,140. This amount was to be deposited in an
interest-bearing account in the First National City Bank of New York (Citibank) for payment to
APT.However, petitioners allegedly refused to apply the sum to the payment to APT, after the
finality of the judgment in the case of CCC.
Petitioners moved to dismiss the Complaint on the ground that it violated the prohibition on
forum-shopping. Respondent CCC had allegedly made the same claim it was raising in another
action, which involved the same parties and which was filed earlier before the International
Chamber of Commerce. After the trial court denied the Motion to Dismiss in its November 14,
2000 Order, petitioners elevated the matter before the Court of Appeals .
ISSUES: Whether or not the petitioners answer with counterclaims violated the procedural
rules on joinder of actions
HELD: 1st issue: The the procedural rules on joinder of actions were not violated.
In joining Lim and Mariano in the compulsory counterclaim, petitioners are being consistent with
the solidary nature of the liability alleged therein. The procedural rules are founded on
practicality and convenience. They are meant to discourage duplicity and multiplicity of suits.
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Quiombing vs. Court of Appeals

Summary: Spouses Saligo contended that the other solidary creditor must be included as coplaintiff being an indispensable party to the claim.
Rule of Law: Either one of the solidary creditors my file a claim against the debtor.
Facts: Spouses Saligo contracted Quiombing (P) and his co-creditor Bischoco to construct a
house for them. The Construction and Service Agreement between the parties stated that the
creditors Quiombing (and Bischoco "jointly and severally" bound themselves to construct a house
for the debtors. Upon completion, Quiombing (P) was paid partially, but was unable to collect the
balance after repeated demands. Quiombing (P) alone filed for recovery of the balance plus
charges and interests.
Issues: (1) May one of the two solidary creditors sue by himself alone for the recovery of
amounts due to both of them without joining the other creditor as a co-plaintiff?
(2) In such a case, is the defendant entitled to the dismissal of the complaint on the ground of
non-joinder of the second creditor as an indispensable part? (3) More to the point, is the second
solidary creditor an indispensable party?
Ruling: Yes. The question of who should sue the private respondents was a personal issue
between creditors Quiombing and Biscocho. It did not matter who as between them filed the
complaint because the private respondents were liable to either of the two as a solidary creditor
for the full amount of the debt. Full satisfaction of a judgment obtained against them by
Quiombing would discharge their obligation to Biscocho, and vice versa; hence, it was not
necessary for both creditors Quiombing and Biscocho to file the complaint. Inclusion of Biscocho
as a co-plaintiff when Quiombing was competent to sue by himself alone, would be a useless
formality.
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Vigilla vs Philippine College of Criminology Inc

FACTS: Philippine College of Criminology (PCCr) is a non-stock educational institution, while the
petitioners were janitors, janitresses and supervisor in the Maintenance Department of PCCr
The petitioners were made to understand, upon application with respondent school, that they
were under MBMSI, a corporation engaged in providing janitorial services to clients. PCCr later
on discovered that the Certificate of Incorporation of MBMSI had been revoked. Hence, PCCr,

through its President Bautista, citing the revocation, terminated the schools relationship with
MBMSI, resulting in the dismissal of the employees or maintenance personnel under MBMSI,
except Alfonso Bongot (Bongot) who was retired. The dismissed employees then filed their
respective complaints for illegal dismissal against MBMSI, Atty. Seril (president of MBMSI), and
Bautista (president of PCCr). They alleged that it was really PCCr which was their real employer
based on the following grounds: MBMSIs certification had been revoked NLRC decision
affirmed LA decision but released PCCr and Bautista from liability by virtue of the quitclaims
executed by petitioners CA decision upheld NLRC decision. Hence, this petition
ISSUE WON a labor-only contractor is solidarily liable with the employer
Held: Yes MBMSI is solidarily liable with the respondents for the valid claims of petitioners
pursuant to Article 109 of the Labor Code However, as already stated above, the quitclaims
redounded to the benefit of PCCr pursuant to Art. 1217 Civil Code In conclusion, considering
that MBMSI, as the labor-only contractor, is solidarily liable with the respondents, as the principal
employer, then the NLRC and the CA correctly held that the respondentsE solidary liability was
already expunged by virtue of the releases, waivers and quitclaims executed by each of the
petitioners in favor of MBMSI pursuant to Article 1217 Civil Code which provides that payment
made by one of the solidary debtors extinguishes the obligation. DISPOSITIVE: Petition denied
_____________________________________________________________________________________

Escao v. Ortigas, Jr.

Facts: On April 28, 1980, Private Development Corporation of the Philippines (PDCP) entered into
a loan agreement with Falcon Minerals, Inc. (Falcon) amounting to $320,000.00 subject to terms
and conditions. [Nagpautang ang PDCP sa Falcon ng $320K]
On the same day, 3 stockholders-officers of Falcon: Ortigas Jr., George A. Scholey, and George T.
Scholey executed an Assumption of Solidary Liability to assume in [their] individual capacity,
solidary liability with [Falcon] for due and punctual payment of the loan contracted by Falcon
with PDCP.
Two (2) separate guaranties were executed to guarantee payment of the same loan by other
stockholders and officers of Falcon, acting in their personal and individual capacities. One
guaranty was executed by Escao, Silos, Silverio, Inductivo and Rodriguez.
Falcon eventually availed of the sum of $178,655.59 from the credit line extended by PDCP. It
would also execute a Deed of Chattel Mortgage over its personal properties to further secure the
loan. However, Falcon subsequently defaulted in its payments. After PDCP foreclosed on the
chattel mortgage, there remained a subsisting deficiency of Php 5,031,004.07 which falcon did
not satisfy despite demand.
Issue: Whether the obligation to repay is solidary, as contended by respondent and the lower
courts, or merely joint as argued by petitioners.
Held:In case, there is a concurrence of two or more creditors or of two or more debtors in one
and the same obligation, Article 1207 of the Civil Code states that among them, [t]here is a
solidary liability only when the obligation expressly so states, or when the law or the nature of
the obligation requires solidarity. Article 1210 supplies further caution against the broad
interpretation of solidarity by providing: The indivisibility of an obligation does not necessarily
give rise to solidarity. Nor does solidarity of itself imply indivisibility.
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Diamond Builders vs. Country Bankers

Facts: Rogelio Acidre (sole proprietor of Diamond Builders) was sued by Marceliano Borja for
breach of his obligation to construct a residential and commercial building Rogelio entered into a
compromise agreement with Borja Rogelio in order to secure himself, entered into surety bond
with Country Bankers
Under the Surety Bond, Rogelio and his spouse and other petitioners in this case signed an
indemnity agreement consenting to their joint and several liability to Country Bankers should the
surety bond be executed upon Rogelio violated the compromise agreement A writ of execution
was issued against Country Bankers for violation of Rogelio to the compromise agreement
Country bankers payed the surety bond and ask for reimbursement from petitioners Petitioners
refused to pay Country bankers filed a complaint for sum of money against petitioners.

Issue: W/N Country Bankers is entitled for reimbursement?

Ruling: Yes. Art. 1217 of the Civil Code recognizes the right of reimbursement from a co-debtor
(principal co-debtor in case of suretyship) in favor of one who paid the surety
Only payments made after the obligation has prescribed or became illegal shall not entitle a
solidary debtor for reimbursement (in accordance with Art. 1218)
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Capalla vs Comelec

FACTS: Comelec and Smartmatic-TIM entered into a Contract for the Provision of an Automated
Election System for the May 10, 2010 Synchronized National and Local Elections (AES Contract)
which is a Contract of Lease with Option to Purchase (OTP) the goods listed therein consisting of
the Precinct Count Optical Scan (PCOS), both software and hardware. The parties agreed that the
AES Contract shall remain effective until the release of the performance security posted by the
Comelec. The Comelec was given until December 31, 2010 within which to exercise the option to
purchase. The option was, however, not exercised within said period. The parties later entered
into an extension agreement giving the Comelec until March 31, 2012 within which to exercise it.
Herein petitioners, however, assailed the validity of such agreement on the ground that the same
requires another public bidding since it substantially amended the terms of the contract. They
also averred that such extension to exercise the option will prejudice the governments interest.
In the assailed June 13, 2012 decision of the Supreme Court, the Court upheld the validity of the
transaction. Hence, the petitioners moved for reconsideration.
ISSUE: Whether or not the extension of the OTP in favor of Comelec is valid?
HELD: The motions for reconsideration are denied.
In this case, the contract is still effective because the performance security has not been
released. Thus, not only the option and warranty provisions survive but the entire contract as
well. In light of the contractual provisions, we, therefore, sustain the amendment of the option
period. The amendment of a previously bidded contract is not per se invalid. For it to be nullified,
the amendment must be substantial such that the other bidders were deprived of the terms and
opportunities granted to the winning bidder after it won the same and that it is prejudicial to
public interest. The end result is that the Comelec acquired the subject PCOS machines with its
meager budget and was able to utilize the rentals paid for the 2010 elections as part of the
purchase price.
The motions for reconsideration are DENIED for lack of merit.

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Rustan Pulp vs. Intermediate Appellate Court

Facts: When Rustan Pulp & Paper Mills started operations Romeo Lluch offered to supply raw
materials. Rustan Pulp proposed a non-exclusive contract to buy wood pulp from Lluch .
However, a condition in the contract gave Rustan Pulp the right to stop accepting deliveries when
the supply became sufficient until such time the raw materials are needed. During the test run of
the pulp mill, major defects on the machinery were discovered prompting the Japanese supplier
of the machinery to recommend the stoppage of the deliveries. The suppliers were informed to
stop deliveries, but were not informed as to the reasons for the stoppage. Lluch sought to
clarify the tenor of the notice as to whether stoppage of delivery or termination of the contract of
sale was intended, but Rustan Pulp failed to reply. This alleged ambiguity notwithstanding, Lluch
and the other suppliers resumed deliveries after a series of talks between Lluch and Romeo
Vergara, the manager of Rustan Pulp . Later, Lluch filed a complaint for breach of contract. The
case was dismissed, but at the same time, the court enjoined Rustan Pulp to honor the contract.
On appeal, the court ruled that Rustan Pulp's suspension of deliveries was not in the lawful
exercise of its rights under the contract of sale.
Issues: Is the suspension of deliveries by Rustan a proper exercise of its rights under the
contract of sale?
Ruling: No. There is basis for the apprehension on the illusory resumption of deliveries at Rustan
Pulp because the prerogative suggests a condition solely dependent upon its exclusive will. The
literal import of contested condition is that Rustan Pulp can stop delivery of pulp wood from
Lluch if the supply at the plant is sufficient as ascertained by Rustan Pulp , subject to redelivery when the need arises as determined likewise by Rustan Pulp .

_____________________________________________________________________________________

Makati Developmental Corp vs. Empire Insurance Corp

FACTS: MAKATI SOLD TO Rodolfo P. Andal a lot SPECIAL CONDITION:

i.
VENDEE/S shall commence the construction and complete at least 50% of his/her/their/its
residence on the property within two (2) years from March 31, 1959 to the satisfaction of the
VENDOR
ii.
Failure to do so, the bond which the VENDEE/S has delivered to the VENDOR in the sum of
P11,123.00 and evidenced by a cash bond receipt dated April 10, 1959 will be forfeited in favor
of the VENDOR by the mere fact of failure of the VENDEE/S to comply with this special condition."
ANDAL GAVE A SURETY BOND, he as principal, and the Empire Insurance Company, as surety,
jointly and severally, undertook to pay the Makati Development Corporation the sum of P12,000
in case Andal failed to comply with his obligation under the deed of sale.
MAKATI FILED COMPLAINT against the Empire.
EMPIRE filed answer with a third-party complaint against Andal.
.There was indication of owner's desire to construct his house with the least possible delay.
MAKATI argues that Andal became liable for the full amount of his bond upon his failure to build a
house within the two-year period which expired on March 31, 1961. Trial court has no authority to
reduce Andal's liability on the basis of Carlos' construction of a house a month after the
stipulated period because there was no contract between Carlos and the Makati Development
Corporation.
ISSUE: WON court erred in mitigating the obligors liability considering obligor failed to commit
obligation within stipulated time.
WON 3rd partys commencement of stipulated condition can be counted in commitment of the
contract.
HELD: Accordingly, the decision appealed from is affirmed, at appellant's cost.
ART 1229 of the Civil Code states:
i.
The judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no performance, the
penalty may also be reduced by the courts if it is iniquitous or unconscionable.
JUAN CARLOS FINISHED 50% OF HOUSE ONE MONTH AFTER EXPIRATION OF STIPULATED PERIOD.
The penal clause in this case was inserted not to indemnify for any damage but rather to compel
performance of the so-called "special condition" and encourage home building among lot owners
in the Urdaneta Village.
_____________________________________________________________________________________
ESGUERRA v VILLANUEVA
FACTS: Esguerra and respondent de Guzman entered into a contract whereby Esguerra leased
to de Guzman a portion of his building for a term of 10 years beginning from July 12 1961 for
amonthly rental of P300 up to July 11 1962 and P400 thereafter. DeGuzman failed to pay the
rental from February to August 1962aggregating P1800, in addition to the sum of P300 (purchase
price of equipment bought by him from the Esguerras. Because of this,respondents mother,
Segunda de Guzman executed in favor of the esguerras a promissory note for P2,100 (P1000 due
on August 121962 and P1100 not later than Augus 31 1962, upon default of the first installment,
the entire value becomes due and demandable).De Guzman failed to pay both installmnents so
the Esguerras commenced a civil case against Mrs. De Guzman. They also instituted a civil case
against de Guzman and writs of attachment were issued. Thereafter, the parties reached a
compromise agreement wherein defendants admit their indebtedness worthP2,260 . This sum
was not paid to the Esguerras on or before November 26 1962 as stipulated in the compromise
agreement. DeGuzman however alleges that he had delivered to Esguerrat hrough his counsel
P800 on December 1962 and P1460 on January 5 1963 so he filed a motion for the release of the
properties seized. De Guzman maintain and the lower court held that the receipt of said sums
P800 and P1400 by the Esguerras constituted acceptance of the incomplete and irregular
performance of their obligation, having been made without any protest or objection.
ISSUE: WON Esguerras issuance of receipt constituted acceptance so as to release de Guzman
from completing his obligation (no) HELD: decision of lower court was reversed
RATIO: The day immediately following the first payment of P800,the Esguerras asked Judge
Villanueva to issue the corresponding writs of execution in the 2 cases. Thus, the Esguerras

patently manifested their dissatisfaction with which necessarily implied an objection or protest
to- said partial payment *the law does not require the protest or objection of the creditor to be
made in a particular manner or at a particular time. So long asthe acts of the creditor at the time
of the incomplete or irregular payment by the debtor, or within a reasonable time thereafter,
evince that the former is not satisfied with or agreeable to said payment or performance, the
obligation shall not be deemed fully extinguished
_____________________________________________________________________________________
Pagsibigan v. CA
On November 3, 1976, Petitioner Pilar Pagsigiban obtained a loan from Respondent Planters
Development Bank ("Bank") for P4,500.00, secured by a mortgage over a parcel of land.
The Promissory Note for the said loan stipulated for the first payment to be made on May 3, 1977
and payments every six months thereafter at P1,018.14 with 19% interest for unpaid
amortizations. It also contained an acceleration clause Initial payment was made in July 6, 1977,
followed by several payments in the total amount of P11,900.00. However, only four of these
payments were applied to the loan, while the rest were "temporarily lodged to accounts payable
since the account was already past due". In 1984, the property was foreclosed extrajudicially
upon Petition by the bank for failure to pay an outstanding balance of P29,554.81. This resulted
in the property being sold to the bank for P8,163.00, and later claimed a deficiency of
P21,391.81.Petitioner filed an action for annulment of sale by Petitioner, which the lower court
granted. However, it was overturned by CA.
Issue: W/N the auction sale is valid.
Ruling: No.The respondent bank had the right to foreclose the mortgage upon the first default
of petitioner on May 3, 1977, but it did not. When it received payment of petitioner on July 6,
1977, the respondent bank had clearly waived its right under the acceleration clause since
instead of claiming penalty charges on the entire amount of P4,500.00, it only computed the
penalty based on the defaulted amortization payment which is P1,018.14.
Further, for more than four years, the bank made petitioner believe that it was applying her
payment on the loan and interest. It is now bound by estoppel to apply the payments to
petitioner's debt and from foreclosing the property.
_____________________________________________________________________________________

Barons Marketing Corp vs Court of Appeals and Phelp Dodge Phils

Facts: August 31, 1973. Phelps Dodge appointed Barons Marketing as one of its dealers of
electrical wires and cables effective Sept. 1, 1973. Defendant was given 60 days credit for its
purchases of Phelps Dodges electrical products
Barons Marketing purchased, on credit, from Phelps Dodges electrical wires and cable in the
total amount of P4,102,483.30. This was then sold to MERALCO, Baron Mktg being the accredited
supplier of
Under the sales invoices issued by Phelps Dodge to Barons Mktg for the subject purchases, it is
stipulated that interest at 12% on the amount of attys fees and collection. Barons Mktg paid
P300,000 out of its total purchases leaving an unpaid account of P3,802,478.20. Phelps Dodge
wrote Barons Mktg demanding payment of its outstanding obligations due Phelps Dodge. Baron
Mktg responded by requesting if it could pay its outstanding account in monthly installments of
P500,000 plus 1%interest per month until full payment, this request was rejected and Phelps
Dodge demanded full paymentof P3,802,478.20. It also said that the amount awarded was a
result of a typographical error.
CoA ruled in favor of Phelps Dodge with the correct amount but only with the 5% for the Attys
fee. No costs. Barons Mktg then alleged that the Coa erred its decision
Issue: W/ON private respondent is guilty of abuse of right
Held: No. a creditor cannot be considered in delay if he refuses to accept partial performance
because, unless otherwise provided by law or stipulated by the parties, a creditor cannot be
compelled to accept
partial performance; however, if good faith necessitates acceptance or if the creditor abuses his
right in not accepting, the creditor will incur in delay if he does not accept such partial
performance.
_____________________________________________________________________________________
SPOUSES CARANDANG

FACTS: Three of the four checks used to pay their stock subscriptions were issued in the name
of Milagros de Guzman, the decedents wife. Thus, Milagros should be considered as an
indispensable party in the complaint. Being such, the failure to join Milagros as a party in the
case should cause the dismissal of the action by reason of a jurisprudence stating that: (i)f a
suit is not brought in the name of or against the real party in interest, a motion to dismiss may
be filed on the ground that the complaint states no cause of action."
ISSUE: Whether or not the RTC should have dismissed the case for failure to state a cause of
action, considering that Milagros de Guzman, allegedly an indispensable party, was not included
as a party-plaintiff.
HELD: No. Although the spouses Carandang were correct in invoking the aforementioned
doctrine, the ground set forth entails an examination of whether the parties presently pleaded
are interested in the outcome of the litigation, and not whether all persons interested in such
outcome are actually pleaded. The first query seeks to answer the question of whether Milagros
is a real party in interest, while the latter query is asking if she is an indispensable party. Since
the issue of this case calls for the definition of an indispensable party, invoking the
abovementioned doctrine is irrelevant to the case because the doctrine talks about a real party
in interest and not an indispensable party. Although it is important to take note that an
indispensable party is also a real party in interest.
_____________________________________________________________________________________
MCLAUGHLIN v CA
FACTS: Petitioner Luisa McLaughlin (seller) and private respondent Ramon Flores (buyer)
entered into a contract of conditional sale of real property. The total purchase price is P140,000.
P26,550 should be paid upon execution of the deed and the balance not later than May 31, 1977
with an interest of 1% per month until fully paid. Flores failed to pay and hence petitioner filed a
complaint for the rescission of the deed of conditional sale. Eventually, the parties entered into a
compromise agreement, which was accepted by the court. The parties agreed that Flores shall
pay P50,000 upon signing of the agreement and the balance in 2 equal installments payable on
June 30, 1980 and December 31, 1980. Flores also agreed to pay P1,000 monthly rental until the
obligation is fully paid for the use of the subject matter of the deed of conditional sale. On
October 30, Flores sent a letter signifying his willingness and intention to pay the ANTONIO |
HIPOLITO | IMPERIAL | ZARAGOSA 35 full balance. On November 7, petitioner filed a motion for
writ of execution alleging that Flores failed to pay the installment due on June 1980 and also
failed to pay the monthly rentals from that date. She prayed that the deed of conditional sale be
rescinded with forfeiture of all payments and payment of the monthly rentals and eviction of
Flores. The trial court granted the motion. On November 17, Flores filed a motion for
reconsideration tendering at the same time a certified managers check payable to petitioner
and covering the entire obligation including the December 1980 installment. The trial court
denied the motion. On appeal, the CA ruled in favor of Flores holding that the delay in payment
was not a violation of an essential condition which would warrant a rescission since On
November 17 or just 17 days from the October 31 deadline set by petitioner, Flores tendered the
certified managers check and that it was inequitable for Flores to forfeit all the payments made
(P101,550).
ISSUE: WHETHER it is inequitable to cancel the contract and to have the amount paid by Flores
be forfeited to petitioner particularly after Flores had tendered the certified managers check in
full payment of the obligation.
HELD: Yes, There is already substantial compliance by Flores with the compromise agreement.
More importantly, the Maceda law recognizes the vendors right to cancel the contract to sell
upon the breach and nonpayment of the stipulated installments but requires a grace period.
_____________________________________________________________________________________
Valmonte v. CA
Facts:Petitioner Lourdes A. Valmonte is a foreign resident. Petitioners Lourdes and Alfredo are
husband and wife both residents of 90222 Carkeek Drive South Seattle, Washington, U.S.A.
Petitioner Alfredo D. Valmonte, who is a member of the Philippine bar, however, practices his
profession in the Philippines, commuting for this purpose between his residence in the state of
Washington and Manila, where he holds office at S-304 Gedisco Centre, 1564 A. Mabini, Ermita,
Manila. Private respondent Rosita Dimalanta, who is the sister of petitioner filed an action for

partition against former and her husband. She alleged that, the plaintiff is of legal age, a widow
and is at present a resident of 14823 Conway Road, Chesterfield, Missouri, U.S.A., while the
defendants are spouses but, for purposes of this complaint may be served with summons at
Gedisco Center, Unit 304, 1564 A. Mabini St., Ermita, Manila where defendant Alfredo D.
Valmonte as defendant Lourdes Arreola Valmontes spouse holds office and where he can be
found.He husband was also her counsel, who has a law office in the Philippines. The summons
were served on her husband.Petitioner Alfredo D. Valmonte thereafter filed his Answer with
Counterclaim. Petitioner Lourdes A. Valmonte, however, did not file her Answer. For this reason
private respondent moved to declare her in default. Petitioner Alfredo D. Valmonte entered a
special appearance in behalf of his wife and opposed the private respondents motion. RTC
denied the MR of respondents. CA declared petitioner Lourdes in default. Said decision was
received by Alfredo hence this petition.
Issue: Whether or not petitioner Lourdes A. Valmonte was validly served with summons.
HELD:NO.There was no valid service of summons on Lourdes.
1.
The action herein is in the nature of an action quasi in rem. Such an action is essentially
for the purpose of affecting the defendants interest in a specific property and not to render a
judgment against him. As petitioner Lourdes A. Valmonte is a nonresident who is not found in the
Philippines, service of summons on her must be in accordance with Rule 14, 17.
_____________________________________________________________________
TRINIDAD V ACAPULCO
FACTS: On May 6, 1991, respondent Estrella Acapulco filed a Complaint before the RTC seeking
the nullification of a sale she made in favor of petitioner Hermenegildo M. Trinidad. She alleged:
Sometime in February 1991, a certain Primitivo Caete requested her to sell a Mercedes Benz for
P580,000.00. Caete also said that if respondent herself will buy the car, Caete was willing to
sell it for P500,000.00. Petitioner borrowed the car from respondent for two days but instead of
returning the car as promised, petitioner told respondent to buy the car from Caete for
P500,000.00 and that petitioner would pay respondent after petitioner returns from Davao.
Following petitioners instructions, respondent requested Caete to execute a deed of sale
covering the car in respondents favor for P500,000.00 for which respondent issued three checks
in favor of Caete. Respondent thereafter executed a deed of sale in favor of petitioner even
though petitioner did not pay her any consideration for the sale. When petitioner returned from
Davao, he refused to pay respondent the amount of P500,000.00 saying that said amount would
just be deducted from whatever outstanding obligation respondent had with petitioner. Due to
petitioners failure to pay respondent, the checks that respondent issued in favor of Caete
bounced, thus criminal charges were filed against her.[3] Respondent then prayed that the deed
of sale between her and petitioner be declared null and void; that the car be returned to her; and
that petitioner be ordered to pay damages.
ISSUE: Whether or not petitioners claim for legal compensation was already too late
RULING: The court ruled in favor of the petitioner. Compensation takes effect by operation of
law even without the consent or knowledge of the parties concerned when all the requisites
mentioned in Article 1279 of the Civil Code are present.[26] This is in consonance with Article
1290 of the Civil Code which provides that: Article 1290. When all the requisites mentioned in
article 1279 are present, compensation takes effect by operation of law, and extinguishes both
debts to the concurrent amount, even though the creditors and debtors are not aware of the
compensation. Since it takes place ipso jure,[27] when used as a defense, it retroacts to the
date when all its requisites are fulfilled.
_____________________________________________________________________________________
SILAHIS V IAC
FACTS: Petitioner Silahis Marketing Corporation seeks in this petition for review on certiorari a
reversal of the decision of the then Intermediate Appellate Court (IAC) in AC-G.R. CV No. 67162
entitled "De Leon, etc. v. Silahis Marketing Corporation", disallowing petitioner's counterclaim for
commission to partially offset the claim against it of private respondent Gregorio de Leon for the
purchase price of certain merchandise. A review of the record shows that on various dates in
October, November and December, 1975, Gregorio de Leon doing business under the name and
style of Mark Industrial Sales sold and delivered to Silahis Marketing Corporation various items of
merchandise covered by several invoices in the aggregate amount of P22,213.75 payable within

thirty (30) days from date of the covering invoices.Allegedly due to Silahis' failure to pay its
account upon maturity despite repeated demands, de Leon filed before the then Court of First
Instance of Manila a complaint for the collection of the said accounts including accrued interest
thereon in the amount of P661.03 and attorney's fees of P5,000.00 plus costs of litigation.
ISSUE: Whether or not private respondent is liable to the petitioner for the commission or
margin for the direct sale which the former concluded and consummated with Dole Philippines,
Incorporated without coursing the same through herein petitioner.
RULING: It must be remembered that compensation takes place when two persons, in their own
right, are creditors and debtors to each other. Article 1279 of the Civil Code provides that: "In
order that compensation may be proper, it is necessary: [1] that each one of the obligors be
bound principally, and that he be at the same time a principal creditor of the other; [2] that both
debts consist in a sum of money, or if the things due are consumable, they be of the same kind.
_____________________________________________________________________________________
UNITED PLANTERS MILLING CO. V. CA
FACTS:In 1987, the Republic of the Philippines lost around 1.5 Billion Pesos after it had waived
its right to collect on an outstanding indebtedness from petitioner, by virtue of a so-called
friendly foreclosure agreement that ultimately was friendly only to petitioner. Petitioner United
Planters Sugar Milling Co. (UPSUMCO) was engaged in the business of milling sugar. In 1974, as
UPSUMCO commenced operations, it obtained a set of loans from respondent Philippine National
Bank (PNB). The loans were secured over two parcels of land where the milling plant stood and
chattel mortgages over the machineries and equipment.On 27 February 1987, through a Deed of
Transfer, PNB assigned to the Government its rights, titles and interests over UPSUMCO, among
several other assets.[6] The Deed of Transfer acknowledged that said assignment was being
undertaken in compliance with Presidential Proclamation No. 50. The Government
subsequently transferred these rights, titles and interests over UPSUMCO to the respondent
Asset and Privatization Trust (APT).
ISSUE: Whether or not there was compensation in the present case.
RULING: The right of PNB to set-off payments from UPSUMCO arose out of conventional
compensation rather than legal compensation, even though all of the requisites for legal
compensation were present as between those two parties. The determinative factor is the mutual
agreement between PNB and UPSUMCO to set-off payments. Even without an express agreement
stipulating compensation, PNB and UPSUMCO would have been entitled to set-off of payments,
as the legal requisites for compensation under Article 1279 were present.
_____________________________________________________________________________________
Perez vs CA
Primitivo Perez had been insured with the BF Lifeman Insurance Corporation since 1980 for
P20,000.00.
In October 1987, an agent of Lifeman, Rodolfo Lalog, visited Perez in Quezon and convinced him
to apply for additional insurance coverage of P50,000.00, to avail of the ongoing promotional
discount of P400.00 if the premium were paid annually. Primitivo B. Perez accomplished an
application form for the additional insurance coverage. Virginia A. Perez, his wife, paid P2,075.00
to Lalog. The receipt issued by Lalog indicated the amount received was a "deposit."
Unfortunately, Lalog lost the application form accomplished by Perez and so on October 28,
1987, he asked the latter to fill up another application form. On November 1, 1987, Perez was
made to undergo the required medical examination, which he passed. Lalog forwarded the
application for additional insurance of Perez, together with all its supporting papers, to the office
of BF Lifeman Insurance Corporationn in Quezon which office was supposed to forward the
papers to the Manila office. Virginia went to Manila to claim the benefits under the insurance
policies of the deceased. She was paid P40,000.00 under the first insurance policy for P20,000.00
(double indemnity in case of accident) but the insurance company refused to pay the claim
under the additional policy coverage of P50,000.00, the proceeds of which amount to
P150,000.00 in view of a triple indemnity rider on the insurance policy. In its letter of January 29,
1988 to Virginia A. Perez, the insurance company maintained that the insurance for P50,000.00
had not been perfected at the time of the death of Primitivo Perez. Consequently, the insurance
company refunded the amount of P2,075.00 which Virginia Perez had paid. Lifeman filed for the

rescission and the declaration of nullity. Perez, on the other hand, averred that the deceased had
fulfilled all his prestations under the contract and all the elements of a valid contract are present.
RTC ruled in favor of Perez. CA reversed.
Issue:Whether or not there was a perfected additional insurance contract.
Held: The contract was not perfected. Insurance is a contract whereby, for a stipulated
consideration, one party undertakes to compensate the other for loss on a specified subject by
specified perils. A contract, on the other hand, is a meeting of the minds between two persons
whereby one binds himself, with respect to the other to give something or to render some
service.
_____________________________________________________________________________________
METROPOLITAN BANK vs. JOAQUIN TONDA
Facts: Spouses Joaquin G. Tonda and Ma. Cristina U. Tonda, hereinafter referred to as the
TONDAS, applied for and were granted commercial letters of credit by petitioner Metropolitan
Bank and Trust Company, hereinafter referred to as METROBANK for a period of eight (8) months
beginning June 14, 1990 to February 1, 1991 in connection with the importation of raw textile
materials to be used in the manufacturing of garments. The TONDAS acting both in their
capacity as officers of Honey Tree Apparel Corporation (HTAC) and in their personal capacities,
executed eleven (11) trust receipts to secure the release of the raw materials to HTAC. The
imported fabrics with a principal value of P2,803,000.00 were withdrawn by HTAC under the 11
trust receipts executed by the TONDAS. Due to their failure to settle their obligations under the
trust receipts upon maturity, METROBANK through counsel, sent a letter dated August 10, 1992,
making its final demand upon the TONDAS to settle their past due TR/LC accounts on or before
August 15, 1992. They were informed that by said date, the obligations would amount to
P4,870,499.13. Despite repeated demands therefor, the TONDAS failed to comply with their
obligations stated in the trust receipts agreements, i.e. the TONDAS failed to account to
METROBANK the goods and/or proceeds of sale of the merchandise, subject of the trust receipts.
Issue: WHETHER METROBANK HAS SHOWN A PRIMA FACIE VIOLATION OF THE TRUST RECEIPTS
LAW IN RELATION TO ART. 315 OF THE REVISED PENAL CODE.
Held:SEC. 13 of P.D. 115 provides that the failure of an entrustee to turn over the proceeds of
the sale of the goods, documents or instruments covered by a trust receipt to the extent of the
amount owing to the entruster or as appears in the trust receipt or to return said goods,
documents or instruments if they were not sold or disposed of in accordance with the terms of
the trust receipt shall constitute the crime of estafa.
___________________________________________________________________________________
CALIFORNIA BUS LINES INC. vs STATE INVESTMENT HOUSE
Facts: Delta Motors Corporation applied for financial assistance from respondent State
Investment House, Inc., a domestic corporation engaged in the business of quasi-banking. SIHI
agreed to extend a credit line to Delta which eventually became indebted to SIHI. Meanwhile,
petitioner purchased on installment basis several buses to Delta. To secure the payment of the
obligation petitioner executed promissory notes in favor of Delta. When petitioner defaulted on
the payments of the debts, it entered into an agreement with delta to cover its due obligations.
However, petitioner still had trouble meeting its obligations with delta. Pursuant to the
memorandum of agreement delta executed a deed of sale assigning to respondent, the
promissory notes from petitioner. Respondent subsequently sent a demand letter to petitioner
requiring remitting payments due on the promissory notes. Petitioner replied informing
respondent of the fact that delta had taken over its management and operations.
Issue: Whether the Restructuring Agreement dated October 7, 1981, between petitioner CBLI
and Delta Motors, Corp. novated the five promissory notes Delta Motors, Corp. assigned to
respondent SIHI,
Held: The attendant facts do not make out a case of novation. The restructuring agreement
between Delta and CBLI executed on October 7, 1981, shows that the parties did not expressly
stipulate that the restructuring agreement novated the promissory notes. Absent an unequivocal
declaration of extinguishment of the pre-existing obligation, only a showing of complete
incompatibility between the old and the new obligation would sustain a finding of novation by

implication. 59 However, our review of its terms yields no incompatibility between the
promissory notes and the restructuring agreement.
__________________________________________________________________________________________________
Millar vs. CA
Facts: Millar obtained a favorable condemning Antonio P. Gabriel to pay him the sum of
P1,746.98 with interest at 12% per annum from the date of the filing of the complaint, the sum of
P400 as attorney's fees, and the costs of suit. The lower court issued the writ of execution on the
basis of which the sheriff seized the respondent's Willy's Ford jeep. The respondent, however,
pleaded with the petitioner to release the jeep under an arrangement whereby the respondent,
to secure the payment of the judgment debt, agreed to mortgage the vehicle in favor of the
petitioner. The petitioner agreed to the arrangement; thus, the parties executed a chattel
mortgage on the jeep. Resolution of the controversy posed by the petition at bar hinges entirely
on a determination of whether or not the subsequent agreement of the parties as embodied in
the deed of chattel mortgage impliedly novated the judgment obligation.
Held: No substantial incompatibility between the mortgage obligation and the judgment liability
of the respondent sufficient to justify a conclusion of implied novation. The stipulation for the
payment of the obligation under the terms of the deed of chattel mortgage serves only to
provide an express and specific method for its extinguishment payment in two equal
installments. The chattel mortgage simply gave the respondent a method and more time to
enable him to fully satisfy the judgment indebtedness. The chattel mortgage agreement in no
manner introduced any substantial modification or alteration of the judgment. Instead of
extinguishing the obligation of the respondent arising from the judgment, the deed of chattel
mortgage expressly ratified and confirmed the existence of the same, amplifying only the mode
and period for compliance by the respondent.
_________________________________________________________________________________________________
Cruz vs CA
FACTS: The Complaint alleged that petitioners and Arnel Cruz were co-owners of a parcel of land
situated in Taytay, Rizal. Yet the property, which was then covered by Transfer Certificate of Title
(TCT) No. 495225, was registered only in the name of Arnel Cruz. According to petitioners, the
property was among the properties they and Arnel Cruz inherited upon the death of Delfin Cruz,
husband of Adoracion Cruz.
Petitioners and Arnel Cruz executed a Deed of Partial Partition, distributing to each of them their
shares consisting of several lots previously held by them in common. Among the properties
adjudicated to defendant Cruz was the parcel of land covered at the time by TCT No. 495225. It is
the subject of this case.
Subsequently, the same parties to the Deed of Partition agreed in writing to share equally in the
proceeds of the sale of the properties although they have been subdivided and individually titled
in the names of the former co-owners pursuant to the Deed of Partition. This arrangement was
embodied in a Memorandum of Agreement executed on August 23, 1977 or a day after the
partition.
In their complaint before the RTC, petitioners asserted that they co-owned the properties with
Arnel Cruz, as evidenced by the Memorandum of Agreement. Hence, they argued that the
mortgage was void since they did not consent to it.
ISSUE: Whether or not the real estate mortgage on the property is valid.
RULING: A reading of the provisions of the Deed of Partition, no other meaning can be gathered
other than that petitioners and Arnel Cruz had put an end to the co-ownership. In the aforesaid
deed, the shares of petitioners and Arnel Cruzs in the mass of co-owned properties were
concretely determined and distributed to each of them. In particular, to Arnel Cruz was assigned
the disputed property. There is nothing from the words of said deed which expressly or impliedly
stated that petitioners and Arnel Cruz intended to remain as co-owners with respect to the
disputed property or to any of the properties for that matter.
_____________________________________________________________________________________
Sps. Reyes vs. BPI
Facts:On March 24, 1995, the Reyes spouses executed a real estate mortgage on their property
in Iloilo City in favor of respondent BPI Family Savings Bank, Inc. (BPI-FSB) to secure

a P15,000,000 loan of Transbuilders Resources and Development Corporation (Transbuilders).

When Transbuilders failed to pay its P15M loan within the stipulated period of one year, the bank
restructured the loan through a promissory note executed by Transbuilders in its favor.
Petitioners aver that they were not informed about the restructuring of Transbuilders loan. In
fact, when they learned of the new loan agreement sometime in December 1996, they wrote BPIFSB requesting the cancellation of their mortgage and the return of their certificate of title to the
mortgaged property. They claimed that the new loan novated the loan agreement of March 24,
1995. Because the novation was without their knowledge and consent, they were allegedly
released from their obligation under the mortgage.
The Manila RTC dismissed petitioners actions for mandamus and prohibition. Their appeal to the
Court of Appeals was likewise dismissed. The CA ruled that on the whole, the contract of
loan/mortgage dated March 24, 1995, appears to include even the new loan
agreement between Transbuilders and BPI, entered into on June 28, 1996.
Issue:Whether there was a novation of the mortgage loan contract between petitioners and BPIFSB that would result in the extinguishment of petitioners liability to the bank.
Held:There was no novation of the mortgage loan contract. Article 1292 of the Civil Code on
novation further provides:
Article 1292. In order that an obligation may be extinguished by another which substitute the
same, it is imperative that it be so declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other. The cancellation of the old obligation
by the new one is a necessary element of novation which may be effected either expressly or
impliedly. While there is really no hard and fast rule to determine what might constitute sufficient
change resulting in novation, the touchstone, however, is irreconcilable incompatibility between
the old and the new obligations.
_____________________________________________________________________________________
Garcia v Lamas
Facts: Petitioner and Eduardo De Jesus borrowed P400,000.00 from respondent. Both executed a
promissory note wherein they bound themselves jointly and severally to pay the loan on or
before 23 January 1997 with a 5% interest per month. The loan has long been overdue and,
despite repeated demands, both have failed and refused to pay it. Hence, a complaint was filed
against both. Resisting the complaint, Garcia averred that he assumed no liability because he
signed merely as an accommodation party for De Jesus; and that he is relieved from any liability
arising from the note inasmuch as the loan had been paid by De Jesus by means of a check
dated 17 April 1997; and that, in any event, the issuance of the check and respondents
acceptance thereof novated or superseded the note.
Respondent answered that there was no novation to speak of because the check bounced.
Issues:. Whether or not there was novation in the obligation
Held:. No. In order to change the person of the debtor, the old one must be expressly released
from the obligation, and the third person or new debtor must assume the formers place in the
relation (Reyes v. CA). Well-settled is the rule that novation is never presumed (Security Bank v.
Cuenca). Consequently, that which arises from a purported change in the person of the debtor
must be clear and express. It is thus incumbent on petitioner to show clearly and unequivocally
that novation has indeed taken place. Petitioner failed to do this. In the present case, petitioner
has not shown that he was expressly released from the obligation, that a third person was
substituted in his place, or that the joint and solidary obligation was cancelled and substituted by
the solitary undertaking of De Jesus.
_____________________________________________________________________________________
ASTRO ELECTRONICS CORP. & PETER ROXAS v. PHILIPPINE EXPORT
Facts: Astro was granted several loans by the Philippine Trust Company (Philtrust) amounting to
P3,000,000.00 with interest and secured by three promissory notes. In each of these promissory
notes, it appears that petitioner Roxas signed twice, as President of Astro and in his personal
capacity. Roxas also signed a Continuing Surety ship Agreement in favor of Philtrust Bank, as
President of Astro and as surety.
Thereafter, Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust the payment
of 70% of Astros loan, subject to the condition that upon payment by Philguanrantee of said

amount, it shall be proportionally subrogated to the rights of Philtrust against Astro. As a result of
Astros failure to pay its loan obligations, despite demands, Philguarantee paid 70% of the
guaranteed loan to Philtrust. Subsequently, Philguarantee filed against Astro and Roxas a
complaint for sum of money with the RTC of Makati.
The trial court ruled in favor of Philguarantee, stating that if Roxas really intended to sign the
instruments merely in his capacity as President of Astro, then he should have signed only once in
the promissory note. On appeal, the Court of Appeals affirmed the RTC decision.
Issue:Whether or not Roxas should be solidarily liable with Astro for the sum awarded by the RTC
Held:Yes. In signing his name aside from being the President of Astro, Roxas became a co-maker
of the promissory notes and cannot escape any liability arising from it. Under the Negotiable
Instruments Law, persons who write their names on the face of promissory notes are makers.
Thus, even without the phrase personal capacity, Roxas will still be primarily liable as a joint
and several debtor under the notes considering that his intention to be liable as such is
manifested by the fact that he affixed his signature on each of the promissory notes twice which
necessarily would imply that he is undertaking the obligation in two different capacities, official
and personal.
_____________________________________________________________________________________
Metrobank vs Rural Bank of Gerona
Legal subrogation. The present case exemplifies the circumstance contemplated under
paragraph 2, of Article 1302 of the Civil Code which provides: It is presumed that there is legal
subrogation: (1) When a creditor pays another creditor who is preferred, even without the
debtors knowledge; (2) When a third person, not interested in the obligation, pays with the
express or tacit approval of the debtor; (3) When, even without the knowledge of the debtor, a
person interested in the fulfillment of the obligation pays, without prejudice to the effects of
confusion as to the latters share. Metrobank was a third party to the Central Bank-RBG
agreement, had no interest except as a conduit, and was not legally answerable for the IBRD
loans. Despite this, it was Metrobanks demand deposit account, instead of RBGs, which the
Central Bank proceeded against, on the assumption perhaps that this was the most convenient
means of recovering the cancelled loans. That Metrobanks payment was involuntarily made
does not change the reality that it was Metrobank which effectively answered for RBGs
obligations. Was there express or tacit approval by RBG of the payment enforced against
Metrobank? After Metrobank received the Central Banks debit advices in November 1978, it
(Metrobank) accordingly debited the amounts it could from RBGs special savings account
without any objection from RBG. RBGs President and Manager, Dr. Aquiles Abellar, even wrote
Metrobank, on August 14, 1979, with proposals regarding possible means of settling the amounts
debited by Central Bank from Metrobanks demand deposit account. These instances are all
indicative of RBGs approval of Metrobanks payment of the IBRD loans. That RBGs tacit approval
came after payment had been made does not completely negate the legal subrogation that had
taken place. Article 1303 of the Civil Code states that subrogation transfers to the person
subrogated the credit with all the rights thereto appertaining, either against the debtor or against
third persons. Respondent is bound by the promissory notes, it must be established that all the
elements of a contract of loan are present.
_____________________________________________________________________________________
UNIWIDE SALES REALTY AND RESOURCES CORPORATION,
vs. TITAN-IKEDA CONSTRUCTIONAND DEVELOPMENT CORPORATION
FACTS:
PROJECT 1. The first agreement was a written Construction Contract entered into
by Titan and Uniwide sometime in May 1991 whereby Titan undertook to construct Uniwides
Warehouse Club and Administration Building in Libis, Quezon City for a fee of P120,936,591.50,
payable in monthly progress billings to be certified to by Uniwides representative. The parties
stipulated that the building shall be completed not later than 30 November 1991. As found by
the CIAC, the building was eventually finished on 15 February 1992 and turned over to Uniwide.
PROJECT 2. Sometime in July 1992, Titan and Uniwide entered into the second agreement
whereby the former agreed to construct an additional floor and to renovate the latters
warehouse located at the EDSA Central Market Area in Mandaluyong City. There was no written
contract executed between the parties for this project. Construction was allegedly to be on the
basis of drawings and specifications provided by Uniwides structural engineers. The parties

proceeded on the basis of a cost estimate of P21,301,075.77 inclusive of Titans 20% mark-up.
Titan conceded in its complaint to having received P15,000,000.00 of this amount. This project
was completed in the latter part of October 1992 and turned over to Uniwide.:
On Project 1 Libis: Uniwide is absolved of any liability for the claims made by [Titan] on this
Project.
Project 2 Edsa Central: Uniwide is absolved of any liability for VAT payment on this project,
the same being for the account of Titan. On the other hand, Titan is absolved of any liability on
the counterclaim for defective construction of this project. Uniwide is held liable for the unpaid
balance in the amount of P6,301,075.77 which is ordered to be paid to the Titan with 12%
interest per annum commencing from 19 December 1992 until the date of payment.
On Project 3 Kalookan: Uniwide is held liable for the unpaid balance in the amount of
P5,158,364.63 which is ordered to be paid to Titan with 12% interest per annum commencing
from 08 September 1993 until the date of payment. Uniwide is held liable to pay in full the VAT
on this project, in such amount as may be computed by the Bureau of Internal Revenue to be
paid directly thereto. The BIR is hereby notified that Uniwide Sales Realty and Resources
Corporation has assumed responsibility and is held liable for VAT payment on this project. This
accordingly exempts Claimant Titan-Ikeda Construction and Development Corporation from this
obligation.
ISSUE:Whether or not the decision rendered is correct.
HELD:The petition is DENIED and the Decision of the Court of Appeals was AFFIRMED.
____________________________________________________________________________________
ANSAY VS NATIONAL DEVELOPMENT COMPANY
FACTS: On July 25, 1956, Primitivo Ansay et al filed against the Board of Directors of the National
Development Company in the Court of First Instance of Manila a complaint praying for a 20%
Christmas bonus for the years 1954 and 1955.
Appellants contend that there exists a cause of action in their complaint because their claim
rests on moral grounds or what in brief is defined by law as a natural obligation.
ISSUE: Whether or not the Christmas bonus is demandable.
HELD: No, it is not demandable. Appellants admit that appellees are not under legal obligation to
give such claimed bonus and such grant only arises from a moral obligation or natural obligation.
However, natural obligation is only enforceable with the presence of the element of voluntary
fulfillment by the obligor. In the case at bar, there has been no voluntary performance on the
part of the appellees. Hence, the bonus is not demandable.
_____________________________________________________________________________________
LEONCIO GABRIEL v. MONTE DE PIEDAD Y CAJA DE AHORROS and CA
Facts: Chattel mortgage executed by Leoncio in favour of Monte de Piedad was valid for not
being contrary to public policy, the law and morals, absent proof.
Chattel Mortgage (December 13, 1932) where Leoncio Gabriel, appraiser of jewels in the
pawnshop of Monte de Piedad, promised to pay P14,679,07 (the value of the deficiencies due to
erroneous appraisal of the pawned jewels), payable by P300/m > Alleged failure to pay >
Termination of Leoncio allegedly without cause and notice > SUIT by Monte de Piedad against
Leoncio for payment of the debt where the mortgage was insufficient > Contention of Leoncio:
(1) the chattel mortgage was void because (a) it is contrary to law, morals and public policy; (b)
he was made to sign it against his will and through misrepresentation where E. Marco (DirectorGeneral) signed in behalf of Monte de Piedad without the latters authority, (c) the subject matter
and considerations of the mortgage do not exist, and the payments already made allegedly for
the mortgage were in fact his salaries; (2) his acquittal in a criminal case that used the chattel
mortgage as evidence of his liability was a bar to the present civil case
Chattel Mortgage does not lack consideration > It was executed voluntarily to guarantee the
deficiencies resulting from his erroneous appraisals of the jewels (CA Held) > Thus, a preexisting
admitted liability is a good consideration for a promise > EXCEPTIONS: if the inadequacy of the
consideration is so gross as to amount to fraud, oppression or undue influence, or when statutes
require the consideration to be adequate

Compliance with the Act 1508, Chattel Mortgage Law, Section 5 > Marco signed as DirectorManager with confirmation from the administration > Law on chattel mortgage contracts only
need substantial compliance and not literal
No res judicata where acquittal in criminal case bars the present civil case > No identity of
subject matter and no dependence of the civil to the criminal.
_____________________________________________________________________________________
PAKISTAN INTERNATIONAL AIRLINES v. HON. BLAS F.
Facts: PIA illegally dismissed Farrales and Mamasig because their termination was without
clearance from MOLE. Despite the contractual agreement that reserved the right of termination
to PIA, labor is a matter of public policy and interests and hence, the Labor Code applies. The
Labor Code prohibits the limitation of employment for the purpose of circumventing security of
tenure and requires MOLE clearance for termination. Hence, the termination was illegal because
the provision in the contract is facultative, dependent solely upon the will of PIA and thus
preventing security of tenure of F,M, and because the termination was made without clearance,
thus presumed to be without cause.
Two Contracts of Employment between PIA, a foreign corporation with license in the Ph, and
Ethelynne Farrales and Maria Mamasig as flight stewardesses for a 3y period > Conditions: Right
of PIA to terminate employment given a 1m notice in writing or payment of 1ms worth of salary;
JOINT SUIT by Farrales and Mamasig against PIA in Ministry of Labor and Employment for illegal
dismissal and non-payment of benefits and bonuses > Contention of PIA: that F,M were habitual
absentees, that they bring in sizeable quantities of personal effects from abroad, that customs
officials warned Manila International Airport to advise F,M to stop the habit > MOLE, thru the
Regional Director, ruled in favor of F,M ordering their reinstatement because (1) their dismissal
was (conclusively presumed to be) without just cause because it was without MOLEs clearance
and hence, illegal; (2) the 3y period of employment violated the Labor Code (Art. 280-281) on
regular and casual employment where F,M have become regular employees for having rendered
continued services for more than 1y Contention of PIA: (1) MOLE has no jurisdiction; (2) No due
process due to no oral hearing; (3) order of reinstatement is a violation of their rights in the
employment contracts
HELD: Illegal Dismissal. Ph Laws apply despite agreement that Pakistan laws should govern
BECAUSE Labor is a matter of public policy Party Autonomy is not absolute > Contract is the law
between the parties but Art. 1306 requires that they not be contrary to law, morals, good
customs, public order or public policy > Laws relating to public policy are thus deemed written
into the contract > Laws on labor and employment cannot thus be excluded from contracts
especially where (1) the contracts were executed and performed in the Ph; (2) F,M are Ph citizens
and are based in the Ph; (3) PIA is a resident of the Ph; (4) No proof of the relevant Pakistani laws
and hence, they are presumed to be thesame
_____________________________________________________________________________________
Rolando Rivera vs. Solid Bank Corporation
Facts: Petitioner Rolando Rivera had been working for Solidbank Corporation since July 1977. He
was initially employed as an Audit Clerk, then as Credit Investigator, Senior Clerk, Assistant
Accountant, and Assistant Manager. Prior to his retirement, he became the Manager of the Credit
Investigation and Appraisal Division of the Consumers Banking Group. In the meantime, Rivera
and his brother-in-law put up a poultry business in Cavite.
In December 1994, Solidbank offered two retirement programs to its employees: (a) the Ordinary
Retirement Program (ORP), under which an employee would receive 85% of his monthly basic
salary multiplied by the number of years in service; and (b) the Special Retirement Program
(SRP), under which a retiring employee would receive 250% of the gross monthly salary
multiplied by the number of years in service. Since Rivera was only 45 years old, he was not
qualified for retirement under the ORP. Under the SRP, he was entitled to receive P1,045,258.95
by way of benefits.
Deciding to devote his time and attention to his poultry business in Cavite,
When Rivera refused to return the amount demanded within the given period, Solidbank filed a
complaint. Petitioner avers that the prohibition incorporated in the Release, Waiver and Quitclaim
barring him as retiree from engaging directly or indirectly in any unlawful activity and disclosing
any information concerning the business of respondent bank, as well as the employment ban

contained in the Undertaking he executed, is oppressive, unreasonable, cruel and inhuman

because of its overbreath.
Issue: Whether or not the post-retirement competitive employment ban is reasonable.
Ruling: The post-retirement competitive employment ban is unreasonable because it has no
geographical limits. The respondent is barred from accepting any kind of employment in any
competitive bank within the proscribed period.
Retirement plans, in light of the constitutional mandate of affording full protection to labor, must
be liberally construed in favor of the employee, it being the general rule that pension or
retirement plans formulated by the employer are to be construed against it.
_____________________________________________________________________________________
GF Equity v CA
FACTS:GF Equity, represented by its Chief Financial Officer, W. Steven Uytengsu, hired Valenzona
as head coach of the Alaska basketball team in the PBA under a contract of employment. He was
tasked to coach at all practices and games scheduled for the Alaska team, coach exhibition
games, coach if invited to participate in any all-star game, attending every event conducted,
play-off games, etc.
He was also tasked to comply with all requirements respecting to the conduct of its team and
players, to implement. Healso agreed to report from time to time as fixed by the corporation in
good physical condition, give his best services, loyalty, to be neatly and fully attired in public and
to conduct himself on and off the court according to the highest standards of honesty, morality,
fair play and sportsmanship, and not to do anything detrimental to the best interest of the
corporation.He also agreed to endorse the corporations products in commercial advertising,
promotions, will allow himself to be taken pictures with others for still photographs, motion
pictures or TV. For his services, he will be paid P35, 000.00 monthly, net of taxes, provide him
with a service vehicle and gasoline allowance. The contract was for two (2) years starting January
1, 1988 to December 31, 1989, with the condition that if at any time during the contract, the
coach fails to exhibit sufficient skill or competitive ability to coach the team, the contract can be
terminated by the corporation Whether or not, the CA concluded wrongly from established facts
in a manner violative of applicable laws and established jurisprudence.GF Equity argued that it
entered into a contract protected by law, as it was not contract to law, morals, good customs
public policy or public order, hence, no bad faith. Valenzona is guilty of laches for his unexplained
inaction of six (6) years.In the case at bar, paragraph 3 gives GF Equity the unbridled prerogative
to pre-terminate the contract irrespective of the soundness, fairness, or reasonableness, or even
lack of bass of its opinion. To validate the paragraph would open the gate for arbitrary and illegal
dismissals, for void contractual stipulations would be used as justification therefor.
_____________________________________________________________________________________
Floirendo Jr v Metrobank
Floirendo loaned for 1M for Reymill Realty, with 4 lands mortgaged. It was renewed for another
year but with interest at 15.446% per annum for 1 st 30 days, subject to upward/downward
adjustment every 30 days thereafter and a penalty charge of 18% per annum based on any
unpaid principal to be computed from date of default until payment of the obligation. Interest
varied, went to 30.244%. F paid the arrears but M still foreclosed mortgaged lands.
Increases of interest rate unilaterally imposed by respondent bank without petitioners
assent are violative of the principle of mutuality of contracts in Art 1308 of CC.: The contract
must bind both contracting parties; its validity or compliance cannot be left to the will of one of
them.
Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to
an unconscionable result is void. Art 1310: Courts are granted authority to
reduce/increase interest rates equitably. While the Usury Law ceiling on interest rate
was lifted by CB Circular No 905, nothing therein could possibly be read as granting
the lender carte blanche authority to raise interest rate to levels which would either
enslave its borrower or lead to haemorrhaging of his assets.
_____________________________________________________________________________________
PNB v CA
FACTS: PNB owned a parcel of land which Lapaz Kaw Ngo offered to buy. Events under the first
letter-agreement PNB accepted Lapazs offer subject to certain stipulations. The important ones

are the following: 1. The selling price shall be P5.4million. Lapaz had already paid P100,000 as
deposit. ANTONIO | HIPOLITO | IMPERIAL | ZARAGOSA 37 2. Upon failure to pay the additional
deposit worth P970,000, the P100,000 shall be forfeited and PNB shall be authorized to sell the
property to another. 3. The property shall be cleared of its present tenants at the expense of
Lapaz. 4. Sale was subject to other terms and conditions to be imposed. Lapaz agreed, so she
proceeded to clear the lot of its tenants at her own expense. However, due to difficulties in
money, she requested for adjustment of payment proposals, which the bank denied. PNB also
reminded her that she had not yet sent her letter of conformity to the agreement reached and
told her to pay the full price of P5.4million. If not, the lot will be sold to other parties. Lapaz
requested for a reduction of the price as the size of the land was substantially reduced. PNB
agreed. PNB still did not receive payment from Lapaz, and gave the latter the last chance to
pay the balance of the down payment. If she failed to pay, the sale shall be cancelled and the
P100,000 payment shall be forfeitedLapaz refused, however, to conform to the condition of
vacating the premises at her expense as she had already done so under the first agreement.
(She apparently considered this second letter-agreement as a continuation of the first so she said
that she was no longer required to evict the tenants as she had already done so.) Besides,
according to her, the occupants of the property were tenants of PNB. PNB refused this offer. To
prevent the forfeiture of her P200,000 deposit, she signed the letter-agreement. She told PNB
that she was willing to pay the remaining deposit of P800K as long as it was PNB who would clear
the property. PNB refused, and forfeited the P200,000 of Lapaz. PNB informed Lapaz that they
had already decided to sell the property for not less than P7M. ISSUES: 1. Whether or not there
was a perfected contract of sale. No. There was no perfected contract of sale. 2. Whether or not
the P100,000 or the P200,000 was earnest money. No. They were not earnest money. HELD: It
is important to note that the first letter-agreement was cancelled and thereafter no longer
existed. The second letter-agreement is not a contract of sale but a contract to sell whose
conditions were not fulfilled, which prevented the obligations therein from obtaining obligatory
force.
_____________________________________________________________________________________
DKC HOLDINGS CORPORATION vs COURT OF APPEALS
FactsThe subject of the controversy is a 14,021 square meter parcel of land located in Malinta,
Valenzuela, Metro Manila which was originally owned by private respondent Victor U. Bartolomes
deceased mother, Encarnacion Bartolome, under Transfer Certificate of Title No. B-37615 of the
Register of Deeds of Metro Manila, District III. This lot was in front of one of the textile plants of
petitioner and, as such, was seen by the latter as a potential warehouse site.
March 16, 1988. DKC entered a contract of lease with option to buy with Encarnacion Bartolome
(Victors deceased mom). DKC was given the option to lease or lease with purchase the subject
land, which option must be exercised within a period of two years counted from the signing of
the Contract. In turn, DKC undertook to pay P3,000.00 a month as consideration for the
reservation of its option. Within the two-year period, DKC shall serve formal written notice upon
the lessor Encarnacion Bartolome of its desire to exercise its option. The contract also provided
that in case DKC chose to lease the property, it may take actual possession of the premises. In
such an event, the lease shall be for a period of six years, renewable for another six years, and
the monthly rental fee shall be P15,000.00 for the first six years and P18,000.00 for the next six
years, in case of renewal.
DKC also tried to register and annotate the Contract on the title of Victor the dick to the property.
Although respondent Register of Deeds accepted the required fees, he nevertheless refused to
register or annotate the same or even enter it in the day book or primary register.
Issue: W/ON the Contract of Lease with Option to Buy entered into by the late Encarnacion
Bartolome with petitioner was terminated upon her death or whether it binds her sole heir,
Victor, even after her demise.
Held: No. Article 1311 of the Civil Code and jurisprudence, Victor is bound by the subject
Contract of Lease with Option to buy executed by his predecessor-in-interest. It is futile for Victor
to insist that he is not a party to the contract because of the clear provision of Article 1311 of the
Civil Code. Indeed, being an heir of Encarnacion, there is privity of interest between him and his

deceased mother. He only succeeds to what rights his mother had and what is valid and binding
against her is also valid and binding as against him. The general rule, therefore, is that heirs are
bound by contracts entered into by their predecessors-in-interest except when the rights and
obligations arising therefrom are not transmissible by (1) their nature, (2) stipulation or (3)
provision of law.
_____________________________________________________________________________________
FLORENTINO, v. ENCARNACION,
Facts: Stipulation in Deed of Extrajudicial Partition, favoring the Church, cannot be revoked by
the appellees because as a stipulation pour autrui which confers benefit to a third person, the
acceptance of the beneficiary, the Church, need not follow any form or be done in a fixed period
as long as it had been done before revocation. The Church had already impliedly accepted it by
its unquestioned enjoyment long before the revocation of appelees. Hence, given that the
stipulation has not been revoked on time, the contract is binding on all parties.
Application for Registration of a parcel of agricultural land (May 22, 1964) A and B as the
common and pro-indiviso owners in fee simple of the land, acquired by virtue of the Deed of
Extrajudicial Partition of the estate of their predecessor-in-interest, aunt Dona Encarnacion
Florentino ~ that they knew of no mortgage, lien, or encumbrance or third persons interested >
Hearing set by and published, No opposition (Director of Lands withdrew opposition), Order of
default against the world, Evidence presented > Registration of property to A and B ~ CFI Denied
the request of Miguel Florentino (A) to consider as an encumbrance the arrangement (stipulated
in the Deed of Extrajudicial Partition), that the fruits of the land is for payment of the expenses
for religious functions specified, due to its non-registration in the Register of Deeds, the absence
of acceptance by the donee Church (considering the arrangement as a donation,
>Arrangement cannot be revoked unilaterally at the option of co-owners B > Why: stipulation is
a stipulation pour autrui ~ Intention of A and B: to confer a direct and material benefit upon the
Church > Hence, Requirement of acceptance has no required form or specified time limit! ~ as
long as done before revocation > Implied Acceptance by Church before revocation: enjoyment
without question of the arrangement since time immemorial (17y from the time of Dona
Encarnacions ownership of the land) > HENCE, stipulation is binding on all parties of the Deed,
which is a contract, the law among the parties > Art. 1309 (1257): force of law of contracts and
mutuality among parties > B, even if non-signatories, are bound for having purchased the shares
of the original heirs and for not objecting to the stipulation
Church need not be the plaintiff > Stipulation is already binding among all parties given that the
Church has already accepted it ~ thus, the stipulation is valid
_____________________________________________________________________________________
De leon vs CA
FREEDOM OF STIPULATION OF CONTRACTS
FACTS: (1) On October 18, 1969, private respondent Jose Vicente De Leon and petitioner Sylvia
Lichauco De Leon were united in wedlock before the Municipal Mayor of Binangonan, Rizal. On
August 28, 1971, a child named Susana L. De Leon was born from this union.
(2) Sometime in October, 1972, a de facto separation between the spouses occured due to
irreconcilable marital differences, with Sylvia leaving the conjugal home.
(3) Sometime in March, 1973, Sylvia went to the United States where she obtained American
citizenship.
(4) On November 23, 1973, Sylvia filed with the Superior Court of California, County of San
Francisco, a petition for dissolution of marriage against Jose Vicente. In the said divorce
proceedings, Sylvia also filed claims for support and distribution of properties. It appears,
however, that since Jose Vicente was then a Philippine resident and did not have any assets in
the United States, Sylvia chose to hold in abeyance the divorce proceedings, and in the
meantime, concentrated her efforts to obtain some sort of property settlements with Jose Vicente
in the Philippines.
(5) On March 16, 1977, Sylvia succeeded in entering into a Letter-Agreement with her mother-inlaw, private respondent Macaria De Leon,

(6) On the same date, Macaria made cash payments to Sylvia in the amount of P100,000 and
US$35,000.00 or P280,000.00, in compliance with her obligations as stipulated in the aforestated
Letter-Agreement.
(7) On March 30, 1977, Sylvia and Jose Vicente filed before the then Court of First Instance of
Rizal a joint petition for judicial approval of dissolution of their conjugal partnership
Applicable Laws:
(1) Article 1306. The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy. (1255a)
(2) Article 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order
or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the contract cannot
be ascertained;
(7) Those expressly prohibited or declared void by law.
_____________________________________________________________________________________
LOYOLA vs.. COURT OF APPEALS
Loyola Grand Villas Homeowners Association, Inc. (LGVHAI) was organized on 8 February 1983 as
the homeoenwers' association for Loyola Grand Villas. It was also registered as the sole
homeowners' association in the said village with the Home Financing Corporation (which
eventually became Home Insurance Guarantee Corporation ["HIGC"]). However, the association
was not able file its corporate by-laws.
Upon inquiry by the LGVHAI to HIGC, it was discovered that LGVHAI was dissolved for its failure
to submit its by-laws within the period required by the Corporation Code and for its non-user of
corporate charter because HIGC had not received any report on the association's activities.
These paved the way for the formation of the North and South Associations. LGVHAI then lodged
a complaint with HIGC Hearing Officer Danilo Javier, and questioned the revocation of its
registration. Hearing Officer Javier ruled in favor of LGVHAI, revoking the registration of the
North and South Associations.
Issue: W/N LGVHAI's failure to file its by-laws within the period prescribed by Section 46 of the
Corporation Code had the effect of automatically dissolving the said corporation.
Ruling: No.The pertinent provision of the Corporation Code that is the focal point of controversy
in this case states:
Sec. 46. Adoption of by-laws. - Every corporation formed under this Code, must within one (1)
month after receipt of official notice of the issuance of its certificate of incorporation by the
Securities and Exchange Commission, adopt a code of by-laws for its government not
inconsistent with this Code.
Ordinarily, the word "must" connotes an imposition of duty which must be enforced. However,
the word "must" in a statute, like "shall," is not always imperative. It may be consistent with an
ecercise of discretion. If the language of a statute, considered as a whole with due regard to its
nature and object, reveals that the legislature intended to use the words "shall" and "must" to be
directory, they should be given that meaning.
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Sps Tiongson vs Emergency Pawnshop
Spouses Carmen and Jose agreed to sell their parcel of land to Danilo for P3,000,000. They then
executed a Memorandum of Agreement. Danilos lawyer meanwhile prepared a Deed of Absolute
Sale where the stated consideration was only P400,000.00. When Carmen noticed the amount
indicated, she complained. Danilo told her not to worry as he would be the one to pay taxes and
she would receive the net amount of P3,000,000.00 Another Memorandum of Agreement was
executed between the parties to conform to with the consideration stated in the Deed of
Absolute Sale. Upon signing the Deed of Absolute Sale, Danilo paid the spouses P200,000.00 and
issued a Philippine National Bank check for the remaining balance which is P2,800,000.00. TCT

No. 143020 was cancelled and a new TCT No. T-186128 was issued in the name of Emergency
Pawnshop Bula Inc. (EPBI). When presented for payment, the check issued by Danilo was
dishonoured for reason Drawn Against Insufficient Fund; despite repeated demands from the
spouses to either pay the full value of the check or to return the parcel of land, Danilo failed to
heed the same, hence the spouses filed a complaint for Annulment of Contract with Damages
with a prayer for temporary restraining order or writ of preliminary injunction to prevent Danilo
from selling the property.
The RTC ruled in favour of the spouses ruled that the case fell within the ambit of Art. 1338 0f the
Civil Code, where fraud attended the execution of the contract justifying the annulment of the
contract. On appeal to the Court of Appeals, the appellate court ruled that indeed there was
fraud, but the fraud does not justify the annulment of contract since it was not the determining
cause for the sale of the land. Instead, it ordered Danilo to pay the remaining balance of
P2,800,000.00. The spouses therefore appealed the CA decision to the Supreme Court.
A contract is a meeting of the minds between two persons, whereby one is bound to give
something or to render some service to the other. A valid contract requires the concurrence of
the following essential elements: (1) consent or meeting of the minds, that is, consent to transfer
ownership in exchange for the price; (2) determinate subject matter; and (3) price certain in
money or its equivalent.
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ECE REALTY AND DEVELOPMENT INC., v.RACHEL G. MANDAP,
FACTS: Petitioner ECE Realty is a corporation engaged in the building and development of
condominium units. Sometime in 1995, it started the construction of a condominium project
called Central Park Condominium Building located along Jorge St., Pasay City. However, printed
advertisements were made indicating therein that the said project was to be built in Makati City.
December 1995: respondent Mandap, agreed to buy a unit from the above project by paying a
reservation fee and, thereafter, downpayment and monthly installments. On June 18, 1996,
respondent and the representatives of petitioner executed a Contract to Sell.In the said Contract,
it was indicated that the condominium project is located in Pasay City.
More than two years after the execution of the Contract to Sell, respondentMandap, through her
counsel, wrote petitioner a letter demanding the return of P422,500.00, representing the
payments she made, on the ground that she subsequently discovered that the condominium
project was being built in Pasay City and not in Makati City as indicated in its printed
advertisements.Instead on answering the letter, petitioner ECE Realtysent a letter informing her
that her unit is already ready for inspection and occupancy should she decide to move in.
ISSUE: Whether or not ECE Realty was guilty offraud and if so, whether such fraud is sufficient
ground to nullify its contractwith Mandap.
HELD: NO. Jurisprudence has shown that in order to constitute fraud that provides basis to annul
contracts, it must fulfill two conditions. First, the fraud must be dolocausanteor it must be fraud
in obtaining the consent of the party. This is referred to as causal fraud. The deceit must be
serious. The fraud is serious when it is sufficient to impress, or to lead an ordinarily prudent
person into error; that which cannot deceive a prudent person cannot be a ground for nullity.The
circumstances of each case should be considered, taking into account the personal conditions of
the victim.Second, the fraud must be proven by clear and convincing evidence and not merely by
a preponderance thereof.
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ANGELINA J. MALABANAN v. GAW CHING and IAC
Facts: Ching was a lessee of the property of Jabit. When Jabit died, his daughter offered the
property for sale to Ching thrice but the latter refused. Daughter Angelina thus demanded that
he leave the property because she had already sold it to another. Angelina also had the building
thereon demolished. Ching sued for the annulment of the sale to Leonida and the injunction of
the demolish order. However, as a third party to the contract, Ching cannot seek its annulment.
He does not have any right to the property as it was outside the coverage of the law; even if it
was the preemptive right cannot apply to him because the building was belonged to the lessor;
no contract of lease to even grant him the right of first refusal; even if there was Angelina had
thrice offered the land for sale.

Lease of the Lot and Bldg of Mr. Jabit to Gaw Ching, non-citizen (1951; no contract) ~ 1 st flr,
Chings Victoria Blacksmith Shop; 2nd flr, residence > Death of Mr. Jabit; Continued Lease with
daughter Angelina Malabanan (still no contract) > Notices (April 27, 1980, May 13, 1980, October
2, 1980) by Angelina to Ching that she is selling the property for P5k/sq.m. ~ Refusal of Ching
(Threat by Angelina that she is to sell it to another > Payment by Ching of rentals to Pacific
Banking Corporation, due to Angelinas refusal to accept it > Letter (November 3, 1980) from
Angelina that she had sold the property to Leonida Senolos ~ Demands (November 24, 1980,
December 5, 1980) by Angelina for Ching to vacate the property > Refusal of Ching, doubting the
veracity of the sale and demanding a copy of the Deed of Sale ~ Eventually given a copy and
discovered that the Sale was actually on August 23, 1979 (for P1,176.48/sq.m.) but registered
only on December 9, 1980 > Demolition (November 16, 1981) of Building by Angelinas men >
SUIT by Ching against Angelina and Leonia for annulment of Sale and injunction for demolition >
CONTENTIONS of Ching: (1) Right of first refusal; (2) Lack of notice of the demolition; (3) Sale
was vitiated by fraud, deceit and bad faith because it was offered to him when in fact, it had
already been sold to Leonida
> VALID SALE > Cannot be contested and annulled by Ching who was not a party to the contract
> Does not come under exception because No right over the property > No legal basis to grant
his petition
(1) Ching had no legal right of preemption pursuant to Secs, 4, 6, PD 1517, PD 1893 and Letter of
Instruction No. 935 which provides a preemptive right on the part of a lessee over leased
property > Property of Angelina is located outside the Urban Reform Zones (as defined in PD
1517);
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GREGORIO F. AVERIA et al. v. DOMINGO AVERIA
Macaria Francisco (Macaria) was married to Marcos Averia in which they had six children namely:
petitioners Gregorio and Teresa and respondents Domingo, Angel, Felipe and Felimon. Upon the
death of Marcos, Macaria contracted a second marriage with Roberto Romero in which they had
no children. Upon the death of Roberto, he left three adjoining residential lots. In a Deed of
Extrajudicial Partition and Summary Settlement of the Estate of Romero, a house and lot
(Extremadura property) was apportioned to Macaria.
Macaria then filed an action for annulment of title and damages alleging that fraud was
employed by her co-heirs in which she was represented by Atty. Mario C.R. Domingo. After six
years, respondents Domingo, Angel, Felipe and Filemon filed an action for judicial partition
against petitioners Gregorio and Teresa.In their defense Gregorio contends that Macaria verbally
sold of her Extramadura property to him and his wife Agripina because they were the ones
who spent for the litigation expenses in the former civil case and that Agripina took care of her.
Gregorio and co-petitioner Sylvana claimed that Domingo sold to Gregorio and Agripina his 1/6
share in the remaining portion of the property. Upon hearing, Gregorio presented oral evidence
to establish their claim of the sale of the property to them by Macaria and also the sale of
Domingo of his share. The Regional Trial Court of (RTC) decided in favor of Gregorio. The CA
however, reversed the decision of the RTC on the ground that since the sale executed by Macaria
in favor of Gregorio was in violation of the statute of frauds and it cannot be proven by oral
evidence.
Issue:Whether or not parol evidence may be admitted in proving partial performance
Held: With respect to the application by the appellate court of the Statute of Frauds, Gregorio
contends that the same refers only to purely executory contracts and not to partially or
completely executed contracts as in the instant case. The finding of the CA that the testimonies
of Gregorios witnesses were timely objected to by Domingo is not, as Gregorio insist, borne out
in the records of the case except with respect to his testimony.
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TORCUATOR v. Bernabe
FACTS:The subject of this action is Lot 17, Block 5 of the Ayala Alabang Village, Muntinlupa,
Metro-Manila, with an area of 569 square meters and covered by TCT No. S-79773. The above
parcel of land was purchased by the Salvador spouses from the developers of Ayala Alabang
subject, among others, to the following conditions:-- It is part of the condition of buying a lot in
Ayala Alabang Village (a) that the lot buyer shall deposit with Ayala Corporation a cash bond

(about P17,000.00 for the Salvadors) which shall be refunded to him if he builds a residence
thereon within two (2) years of purchase, otherwise the deposit shall be forfeited, (b)
architectural plans for any improvement shall be approved by Ayala Corporation, and (c) no lot
may be resold by the buyer unless a residential house has been constructed thereon (Ayala
Corporation keeps the Torrens Title in their [sic] possession). Salvadors sold the parcel of land to
Bernabe spouses.. Confronted by the Ayala Alabang restrictions, the parties agreed to cause the
sale between the Salvadors and the Bernabes cancelled, in favor of (a) a new deed of sale from
the Salvadors directly to the Torcuators; (b) a new Irrevocable Special Power of Attorney executed
by the Salvadors to the Torcuators in order for the latter to build a house on the land in question;
and (c) an Irrevocable Special Power of Attorney from the Salvadors to the Bernabes authorizing
the latter to sell, transfer and convey, with power of substitution, the subject lot.The deed of sale
was never consummated nor was payment on the said sale ever effected. Subseuqently,
Bernabes sold to Angeles, a brother-in-law, however the document was not notarized. Torcuators
filed an action against the Bernabes and Salvadors for Specific Performance or Rescission with
Damages. TC dismissed petition. CA also dismissed the appeal, ruling that the sale between the
Bernabes and the Torcuators was tainted with serious irregularities and bad faith.
ISSUE:WON the agreement is a contract to sell or a contract of sale.
HELD:The agreement is a contract to sell.
Contract of sale- title passes to the buyer upon delivery of the thing sold; Non-payment of the
price is a negative resolutory condition.
Contract to sell- ownership is reserved in the seller and is not to pass until the full payment of
the purchase price is made; Full payment is a positive suspensive condition.
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URETA VS URETA
The applicability of the PER requires that the case be between parties and their successors-ininterest. Both the Team A and Team P are successors-in-interest of the parties to the Deed of Sale
as they claim rights under Alfonso and Policronio, respectively. The PER excludingevidence
aliunde, however, still cannot apply because the present case falls under 2 exceptions
to the rule, as discussed above.
Facts: Alfonso begot 14 children, namely, Policronio, Liberato, Narciso, Prudencia, Vicente,
Francisco, Inocensio, Roque, Adela, Wenefreda, Merlinda, Benedicto, Jorge, and Andres. The
children of Policronio (Team P), are opposed to the rest of Alfonsos children and their
descendants (Team A).

Alfonso and four of his children, namely, Policronio, Liberato, Prudencia, and Francisco,
met at the house of Liberato. Francisco, who was then a municipal judge, suggested that in order
to reduce the inheritance taxes, their father should make it appear that he had sold some
of his lands to his children.

Alfonso executed 4 Deeds of Sale covering several parcels of land in favor of

Policronio, Liberato, Prudencia, and his common-law wife, Valeriana Dela Cruz. The Deed of Sale
executed on Oct 25, 1969, in favor of Policronio, covered six parcels of land, which are the
properties in dispute in this case.

Since the sales were only made for taxation purposes and no monetary consideration was
given, Alfonso continued to own, possess and enjoy the lands and their produce.

Policronio died on Nov 22, 1974. Except for the said portion of parcel 5, neither Policronio
nor his heirs ever took possession of the subject lands.

Alfonsos heirs executed a Deed of EJP, which included all the lands that were covered by
the 4 deeds of sale. Conrado, Policronios eldest son, representing Team P, signed the Deed of EJP
in behalf of his co-heirs.

Team P found tax declarations in his name covering the six parcels of land. They obtained
a copy of the Deed of Sale executed on Oct 25, 1969 by Alfonso in favor of Policronio.

Believing that the six parcels of land belonged to their late father as such, excluded from
the Partition, Team P sought to amicably settle the matter with the Team A.

Team P filed a Complaint for Declaration of Ownership, Recovery of Possession, Annulment

of Docs, Partition against the Team A before the RTC where the ff issues were submitted:
o (1) WON the Deed of Sale was valid;
o (2) WON the Deed of EJP was valid; and

HELD: deed of sale was void No money involved in the sale. Even granting that there was, the
amount was grossly inadequate (P2K). Team P only paid real estate taxes in 1996 and 1997.

Policronio must have been aware that the transfer was merely for taxation
purposes because he did not subsequently take possession of the properties even after the
death of his father.
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Gallanosa v. Arcangel
Facts: Florentino Gallanosa executed a will in 1938 when he was 80 years old. He owned 61
parcels of and at that time. He died in 1939 childless and survived by his brother Leon. In his will,
he bequethed his 1/2 share of the conjugal estate to his second wife Tecla and if she predecease
him (as what occurred), the said share shall be assigned to the spouses Gallanosa (Pedro &
Corazon). Pedro is Tecla's son by her 1st marriage. He also gave 3 parcels of land to Adolfo, his
protege. The said will was admitted to probate with Gallanosa as executor. In 1952, thjhe legal
heirs filed an action for the recovery of said 61 parcels of land. The action was dismissed on the
ground of res judicata. Then, 28 years after probate, another acton agaisnt Gallanosa for
annulment of the will, recovery of the lands alleging fraud and deceit, was filed. As a result, the
lower court set aide the 1939 decree of probate.
Issue: Whether or not a will which has been probated may still be annulled
HELD: No. A final decree of probate is conclusive as to the due execution of the will. Due
execution means that the testator was of sound and disposing mind at the time of the execution
and that he was not acting under duress, menace, fraud or undue influence. Finally, that it was
executed in accordance with the formalities provided by law.
The period for seeking relief under Rule 38 has already expired, hence the judgment may only be
set aside on the grounds of, 1) lack of jurisdiction or lack of due process of law, and 2) the
judgment was obtained by means of extrinsic collateral fraud (which must be filed within 4 years
from the discovery). Finally, Art. 1410 cannot apply to wills and testament.